May 25, 2007
Economic Idiot Award X
Step forward President Ahmadinejad please, to collect your prestigious Economic Idiot Award:
Iran's financial system suffered a fresh jolt yesterday with panic selling on the stock market after the president, Mahmoud Ahmadinejad, abruptly ordered banks to cut interest rates sharply, despite surging inflation.
The order, which Mr Ahmadinejad issued by telephone during a visit to Belarus and which flew in the face of expert advice - has triggered warnings of a financial crisis and spiralling corruption amid fears of a capital flight from the country's lending institutions.
So, we've got spiralling inflation, the usual cure for which is a rise in interest rates. What does our man do?
Mr Ahmadinejad's decree forced all state-owned and private banks to slash borrowing rates to 12%. Inflation is officially 15% but is generally believed to be much higher.
Right, interest rates are now below the inflation rate, meaning that the bank is paying you to borrow money. That'll sure curb inflation, eh?
You know, this man might actually be stupid enough to really be trying to build an atomic bomb, a rather worrying device to have in the hands of one so ignorant, don't you think?
September 25, 2006
Economic Idiot Award
It's a long time since we've awarded one of these but via Jane Galt we have a perfect candidate.
Please, step forward, the Discovery Channel, to receive your coveted raspberry.
As to why, read this from Jane.
As an aside, obviously working for The Economist is improving Jane's spelling. Becoming veddy British.
people cut back on labour day travel
Possibly even too much so?
February 24, 2006
Economic Idiot Award VIII
Please, step forward Mr. Neal Lawson:
The market relentlessly creates winners - and therefore losers -
As fine a piece of economic idiocy as you are likely to see. Markets are voluntary, the participants only engaging in trade if both of them gain. It’s not the creation of winners that is incorrect, but the assumption that this therefore means losers. It isn’t a zero sum game, it’s net positive.
For the slower ones at the back there, those socialists with knitted brows, think of it this way.
Mr. Lawson himself has voluntarily given up some of his time to pen this little piece for The Guardian. The Guardian has (I assume) given up some of its money in return for that time. Lawson values the money (and perhaps publicity that he’s giving to his ignorance of matters economic) more than he values his time. The Guardian values his public explanation of his idiocy more than it does the money.
We therefore have a trade, in a market, of Mr. Lawson’s time for The Guardian’s money which creates two winners and no losers, both parties have something they value more than what they possessed at the beginning of the transaction. It isn’t, unless one wants to go to absurd lengths, possible to identify a loser in this transaction (the losers, at such absurd length, being the children who are more likely to suffer an incompetent education system as a result of the publicity...an externality if you wish). Even I have gained from their interaction according to their own enlightened self-interest as I am able to pen this little piece of snark about it.
So, a worthy winner I feel, a secret masonic handshake, pat yourself on the back Mr. Lawson and lashings of ginger beer all round. Well Done.
January 14, 2006
Economic Idiot Award VI
Step forward please Ms. Russell:
...done just what markets do: polarise schools into the best and the worst,
I’ll agree that schools are indeed polarised in this manner but that isn’t a result of markets and that isn’t what markets do. Markets are simply a mechanism for the distribution of resources to those who value them most highly. A proper market in schools would reduce the polarisation between rich and poor (and might increase it between those parents who care and those who do not).
September 07, 2005
Economic Idiot Award V
I present, for your reading pleasure, the fifth winner of the Economic Idiot Award.
He thinks that prices should not rise in times of scarcity.
Just to make it clear for Jesse.
"a gouger's market is premised on very few suppliers soaking up the market for the most amount of money. It's explicitly premised against competition - hence the reason why the first gouger hoarded. You can't have fifty gougers in a market,"
Indeed, you can’t have too many gougers in a market. That is what rising prices tell us. That there are big fat juicy profits to be made so more people try to supply that market. And thus supply rises, prices fall and ummm, hey! markets work!
Sorry, the American left will never be taken seriously until they manage to absorb a modicum of economic thought. No, you don’t have to buy the whole shebang, just a little bit, a touch of rationality is all I ask for.
August 01, 2005
Economic Idiot Award For Timmy!
Just in case you haven’t seen it, I got tagged for my own Economic Idiot Award. Details here.
I think I escape intact.
July 31, 2005
More Economic Illiteracy.
Looks like Liz Day doesn’t actually know what a millionaire is.
A range of clothing emblazoned with slogans promoting virginity until marriage is set to make its founder a millionaire.
The clothing is so popular that Wait Wear's founder and director, Yvette Thomas, expects turnover of more than £1 million this year - 250 times up on 2004.
Now it may be true that this rather amusing line of clothes will make the owner a millionaire. It could even be true that a company with a million in turnover will be worth a million, thus making the owner a millionaire. But that certainly isn’t necessarily the case. I mean I own a business that turns over a million a year, it has done for a decade. But I’m most certainly not a millionaire.
What matters is the profit made on that turnover, something very different. Ms. Day has got confused between a turnover of one million, income of one million and asset value of one million.
July 30, 2005
I Just Don’t Get This.
Nevertheless, the threat to refinery capacity was enough to push the price of crude in New York to $60.45, up 51 cents, in early trading. In London, Brent rose 57 cents to $59.33.
Our very first award of this prestigious prize was over the earlier explosion at the same refinery and the way in which a jump in crude prices was ascribed to it. J. Greene provided one answer in the comments to the first award which might be possible although I rather doubt it, as we all know, refineries are at 100% (or something) of capacity already.
So here’s the question again. How does a decrease in the capacity to refine crude lead to an increase in its price? I can see that it will lead to an increase in derivatives, but don’t get the increase in crude. Short term supply of oil is inelastic, so one would think that there will therefore be more oil lying around waiting to be processed and thus (given that it has storage costs) will go down in price.
There’s one possibility I guess. The unit that blew up refines sludge into higher grades. That might mean an increase in the price difference between light and heavy grades, as it is the latter that has had its refining capacity reduced, and both Brent and the West Texas quoted in New York are light grades.
But the bare statement "refining capacity down, crude prices up" seems entirely wrong to me. We’ll see if I can get a clarification from the journalist.
(And yes, this time I’m acknowledging up front Pootergeek’s wise point, that trying to use economics to track short term commodity price movements is idiotic, a grand way to lose money. What matters is what all the other traders think is true, not what is.)
Update: From the journalist himself:
What can I say? I merely reported what the traders were saying on Friday. I can see the economic logic of your point, but, as you suggest, markets are rarely driven by economic logic.
If I was pushed for an explanation beyond panic buying and irrational speculation, I might say:
(a) The prospect of a shortage of gasoline/petrol increases demand for the types of crude (Brent, Light sweet) that yield a higher proportion of petrol.
(b) Crude is used by speculators to hedge their positions in other oil products.
(c) In theory, the shutdown of one refinery would increase demand, as other refineries bought up supplies to ramp up production and fill the gap.
Obviously that may be less of a factor at present, with refineries running at 97pc capacity or so. Nevertheless, the theory alone may be enough to tempt speculators into the market.
I acknowledge that none of these points really make a compelling case for the price spike. But then I'm not convinced that $60 oil is merely a reflection of the supply/demand balance.
a) I agree is possible (and mentioned it), b) should cause a widening of the gap between derivatives and crude, c) new demand should be exactly equal to the drop in old.
I’ll also agree that this is what traders told Malcolm. My own reading of it is this. Prices rose on Friday for crude. There was a piece of news that day, about the explosion at the refinery. At the end of the day traders are casting around for an event upon which to pin the rise in prices and that refinery story is what was used. At a guess (and yes, I am guessing, completely,) there was in fact no connection between the two events at all, it’s simply another example of backward looking rationalisation. Something happened so there must be a reason for it, a story to tell, other than that day there were simply more buyers than sellers.
As Terry Pratchett points out, we are Pan Narrans. We’re not just the story telling chimps, we require stories so as to make sense of the world around us. Whether they are true or not.
Further Update: I get nominated for my own Economic Idiot Award! Malcolm writes:
Can I now be bold enough to suggest that you win your own economic idiot award for saying there were more buyers than sellers.
As we all know, the number of buyers and sellers must be equal.
Dare you to put this on your blog.
As I said with the very first such award I was bound to get nominated sometime. Not sure he’s quite got me here. If one person buys a thousand contracts and a thousand people sell one each then we have different numbers of buyers and sellers. But at the deeper level, of course he’s right, the volume of oil bought must be equal to the volume sold.
What we both should have said is that at $59 (or whatever) there was greater demand for oil than supply and at $59.50 (or whatever) the two were in balance, thus the price rise. Mea culpa but not yet a secret masonic handshake and lashings of ginger beer for Timmy! Phew!
July 29, 2005
Economic Idiot Award IV.
Another in our popular series of Economic Idiot Awards. This could be awarded to Charles Clover, the author of the piece (and Environment Editor of the Torygraph....yes, yes, I know, we don’t expect these people to get economics) or perhaps to the Royal Institute of Chartered Surveyors, the source of the information. It rather depends on who put the "but" into the report.
The amount of farmland on the market has increased for the first time in three years, but the price of land is falling, the Royal Institution of Chartered Surveyors said yesterday.
So, lessee. There’s an increase in supply and no word of an increase in demand. We are therefore surprised that prices are falling? We might accept "and the price of land is falling" and "therefore the price of land is falling" would also seem to be appropriate (although since we know nothing of the demand side possibly not entirely correct). However, "but" is clearly showing a disillusioning ignorance of the workings of markets and thus is a worthy winner of the Economic Idiot Award.
Masonic handshakes and lashings of ginger beer all round I think.
As an aside I think this has probably cocked whatever slim chance I ever had of writing for the Telegraph environment section yet still, these things need to be said.
Update: The Winner Responds! Take it away Mr. Clover:
I agree, "and" would have been better. Land prices, however, are an
Alice in Wonderland world where the laws of supply and demand don't
Otherwise your email was needlessly prolix.
Well, it’s a blog post whose existence you were advised of but yes, I am guilty of being prolix. Many thanks for the gracious acceptance speech.
July 14, 2005
Economic Idiot Award III
It’s some time since we had an award of our grand prize for economic idiocy. Simon Hildrey of the Guardian? Please step up to the plate to accept this prestigious encomium for adding to the idiocy which washes all around us.
In Actual Fact has the details. Believe me, the award is well deserved.